RBI's new rule on gold-backed loan will lead to biz model adjustment: S&P

The RBI's new rules on lending against gold will lead to business model adjustment, and operational agility, service excellence will remain the key differentiator between lenders, S&P Global Ratings said on Thursday.

 

Earlier this month, the RBI raised the loan-to-value (LTV) ratio for lending against gold to 85 per cent for borrowings under ₹2.5 lakh from the present 75 per cent.

 

The LTV ratio has been fixed at 80 per cent for loan amounts between ₹2.5–5 lakh and 75 per cent for loans above ₹5 lakh. Lenders have time until April 1, 2026, to prepare for the changes. 

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In its report titled 'India's new rules on gold-backed loans may reshape the competitive landscape', S&P said the Reserve Bank of India's new rules on gold-backed loans will likely lead to business model adjustments in the country's booming lending niche. 

In our view, operational agility and service excellence will remain the key differentiator between lenders," S&P said.

 

S&P Global Ratings credit analyst Geeta Chugh said NBFCs need to develop risk management policies and processes to evaluate borrowers' repayment capabilities based on income and cash flows.

 

"Traditionally, they have relied on collateral valuation. Bridging the skill gaps to hire and train loan officers on assessing repayment ability is both an upfront cost and an hurdle to overcome for these lenders," Chugh said.